Why Airline Stocks Are Flying High Today

What happened

Apparently, every day there are new signs that aerial activities are returning to normal. That, plus a new round of stimulus that should both help businesses and hopefully create additional travel demand, drove stocks higher on Friday.

Show the way east Spirit Airlines (NYSE: SAVE), up 8%, with American Airlines Group (NASDAQ: AAL) and Jet Blue Airways (NASDAQ: JBLU) each up to 6%.

So what

Airlines companies were among the big losers of 2020, as the pandemic wiped out travel demand and sent businesses into the red. But the American industry survived, thanks in part to billions in government aid.

With the vaccine rollout continuing as planned, investors are growing optimistic that demand will pick up by the summer travel season. The airlines do their best to signal that they believe in it too. In the past 24 hours, Spirit and JetBlue have both announced additional flights to sunny, tourism-focused destinations, looking to capitalize on an expected summer surge.

Image source: Getty Images.

Airlines are also receiving additional government support to ensure they are ready for the summer. The $1.9 trillion stimulus bill, signed into law on Thursday, includes additional payroll support for airlines. This means they can afford to keep staff available in anticipation of a rebound and avoid the costly retraining process that comes with furloughs.

The stimulus package should also put thousands of dollars in the pockets of Americans. If all goes according to plan, part of this sum will probably go towards plane tickets.

Now what

The airlines are back, but investors should be careful from here.

A full recovery, including business travel and traditionally higher-margin international travel, will likely take years to materialize. And equities have arguably taken a head start in recent weeks. Given the debt, many airlines are really worth more now than they were at the start of 2020.

Spirit is likely the short-term winner of this group, with a route network designed to meet the needs of leisure travelers and a cost structure that allows it to profitably undercut most of its rivals. JetBlue does best when travelers are willing to pay for its well-regarded premium Mint service, but the airline has a brand consumers love and plenty of flights to sunny destinations.

American, meanwhile, made the most impressive comeback of any major airline. But that’s partly because he was seen at this time last year as most likely to run into trouble as the pandemic worsened. American is a well-run airline that has the wherewithal to survive, but of these three, it’s the one that’s likely to keep digging under the pandemic even after others fly high.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

About Michael Terry

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